Ocado Rises to Record After Goldman’s Buy Rating: London Mover

By Natasha Doff -
Oct 8, 2013

Ocado Group Plc (OCDO) rose to the highest
since its initial public offering three years ago after Goldman
Sachs (GS) Group Inc. recommended buying the shares and said a tie-up
with William Morrison Supermarkets Plc. will accelerate growth.

The U.K.’s largest Internet-only grocer climbed 5.1 percent
to 450.50 pence, the highest price since July 2010. Goldman
Sachs, which previously held no rating for Ocado, said in a
report to clients that its 24-month share-price estimate for the
stock was 545 pence.

Ocado struck a 25-year deal in May to provide an online
grocery service for Morrison, the U.K.’s fourth-largest grocer,
beginning in January 2014. As well as operating its own online
food-delivery service, Hatfield, England-based Ocado is trying
to license its warehouse-processing and Web technology to
domestic and international retailers. The company expects more
deals like the Morrison (MRW) agreement, Chief Executive Officer Tim Steiner said in a speech in Paris today.

“The deal essentially gives Ocado a stake in the profit
pool of Morrison’s online business over the next 25 years,
broadening its market opportunity in the U.K.,” Goldman Sachs
analysts led by Franklin Walding said in the report. “It also
provides an element of diversification away from purely
Ocado.com sales.”

Ocado was the second biggest gainer among stocks on the
FTSE 350 Index today. The stock has advanced more than fivefold
this year, giving the company a market value of 2.6 billion
pounds ($4.2 billion).

The investment bank estimated Ocado’s sales will grow 19
percent in the fourth quarter from a year earlier, up from 16
percent in the third quarter.

Of 11 analysts who follow Ocado and share their findings
with Bloomberg, six recommend selling the stock, three suggest
buying and two advise holding. The average 12-month price target
for the stock is 258.33 pence, based on six estimates, implying
a potential decline of 43 percent.